If you are thinking of purchasing a home in the near future, there is a good chance that you will need to secure a mortgage. With home prices steadily on the rise, it is more important than ever to put a lot of thought into not only the home you buy, but also the mortgage you get.
There are a variety of different kinds of mortgages that are out there for individuals to consider. There is no right or wrong type of mortgage, it all depends on your unique situation, wants and needs. This article is going to take a closer look at some of the considerations and choices that you can make while looking for a mortgage.
Fixed Rate Mortgage
A fixed-rate mortgage is exactly what it sounds like, and is when your interest rate remains the same throughout your entire mortgage. These are ideal if you plan on staying in a home for a while as they offer stability and predictability, and keep you from wondering what your next mortgage payment will be.
While that sounds great, these loans are typically higher in interest than other conventional loans, as they give you the peace of mind to always know exactly what your payment will be each month. These are largely for those who feel that interest rates will rise, as you will be safe from it.
Adjustable Rate Mortgage
An adjustable rate mortgage (or ARM) is a mortgage in which your interest rate will change with changes in the market. These can be a bit of a gamble, but generally, the interest rate is lower, but they do have the potential of going much higher than a fixed-rate mortgage would be.
These are ideal for those who feel that interest rates will decrease over time. If you go with this type of mortgage, you need to be okay with the idea of your rate changing a lot and really not knowing what your payments will be in the future.
In addition to the conventional loans that many people go with when buying a home, there are also several government-backed mortgages that can provide benefits for certain types of homebuyers. Many of the benefits will include better terms, less down payment required, and many others.
These types of loans include USDA home loans (which provide help to people buying in rural areas), FHA loans (which help people with less-than-ideal finances buy a home) and VA loans (which help retired military personnel purchase a home.
Consider the Term and Amortization Period
In addition to looking at the type or kind of mortgage you get, you also need to look at the amortization period and term that you go with. Many think these two terms mean the same thing, but that is not the case. The amortization is the entire period of your loan, which is usually 15-30 years, and the choice you make will depend on how much you can afford.
The mortgage term is the period of your mortgage that you are tied to a certain provider and interest rate. 5 years is a common term and after each term, you are free to look for another lender and a better interest rate. Of course, you can opt for a shorter or longer term if you want, as well.